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FY11 highlights – Spike on RoE gross-up with corporate tax rate appears low,
operating metrics robust
COMPANY QUICK COMMENT
Five-point summary of NTPC’s FY2011 provisional financials and operating metrics: [1] At Rs88.26bn, FY11
provisional reported PAT was in line with our forecast; [2] Company confirmed that RoE was grossed-up at corporate
tax rate in 4QFY11, however, the spike in provisional PAT seems low; [3] Coal/Gas ‘PAF remains robust at 91.6% and
92.6%; [4] Coal linkage for 9 new projects (10920MW) received; and [5] 4.3GW target capacity addition in FY12,
14.7GW capacity under construction. Pending clarity on the RoE gross-up, we maintain forecasts for NTPC for now,
but could revise later. Maintain BUY.
Three takeaways from NTPC’s release on provisional financials and operating metrics for FY2011:
[1] RoE grossed-up at corporate tax rate; we expected a higher spike in provisional PAT
At Rs88.26bn, NTPC’s provisional reported net profit for FY2011 was in line with our forecast reported PAT for NTPC; adjusted PAT
figures are not available. At Rs25.1bn, although provisional 4QFY11 net profit was up 6% sequentially, considering the grossing up
of RoE at the corporate tax rate (33.2%) instead of MAT rate (19.9%) for the whole of FY2011, the Rs1.4bn uptick in reported profit
seems low to us.
[2] Coal / Gas ‘Availability’ remains robust
Plant Availability Factor (PAF) for coal-fired capacity in FY11 remained robust at 91.6% (160bps above our forecast assumption);
allaying concerns of fixed cost recovery from shortfall in coal supplies. PAF for gas-fired stations was 92.6% in FY11.
NTPC has seen improvement in coal supplies at Farakka and Kahalgaon facilities in FY11 – Farakka facility reached the normative
threshold PAF of 85% while disincentives at Kahalgaon facility materially reduced YoY. Overall, NTPC had 13.5 days of coal stock at
its stations as of March 2011.
As regards coal sourcing: [1] NTPC has received coal linkages for nine new projects with an aggregate capacity of 10,920MW
(6,120MW wholly owned projects); [2] Proposals to acquire coal mines abroad are under review; due diligence is underway on four
proposals in Indonesia and Australia; and [3] Starting FY2013, the Pakri Barwadih captive coal block is expected to produce 311.7mt
of coal over a 27-yr period
[3] 4.3GW target capacity addition in FY12, 14.7GW capacity under construction
NTPC's wholly owned commissioned and commercial capacity addition in FY11 was 1990MW (vs. our forecast of 2650MW) and
990MW (vs. our forecast of 1490MW), respectively. For FY12, NTPC expects to commission 4320MW including 2000MW of JV
capacity; currently, we peg stand-alone capacity commissioning at 2820MW.
NTPC’s FY11 stand-alone capex was Rs128bn ~25% below our forecast of Rs177bn. For FY12, NTPC has pegged stand-alone
capex at Rs264bn (~15% above our current FY12F capex of Rs223bn). Notably, on a stand-alone basis, NTPC has 10.9GW
capacity under construction and 12.3GW capacity under tendering. Environment clearance is in place for the 9x660MW projects
under bulk tendering
Pending clarity on the RoE gross-up, we maintain our current forecasts for NTPC, but could be revising forecasts with further
information. We maintain our BUY rating on the stock; on our FY13F forecast, the stock is trading at 14.1x P/E and 2.0x P/B.
Valuation Methodology and Investment Risks: We use a residual income model to value the company. Key assumptions of our model
are 1) Cost of equity - 12%; 2) Terminal RoE - 20%; and 3) terminal growth rate - 2%. / / Risks to price targets: 1) Project execution delays;
2) lower coal supplies under already signed FSAs/LoAs; 3) reinvestment risk; and 4) adverse regulatory changes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FY11 highlights – Spike on RoE gross-up with corporate tax rate appears low,
operating metrics robust
COMPANY QUICK COMMENT
Five-point summary of NTPC’s FY2011 provisional financials and operating metrics: [1] At Rs88.26bn, FY11
provisional reported PAT was in line with our forecast; [2] Company confirmed that RoE was grossed-up at corporate
tax rate in 4QFY11, however, the spike in provisional PAT seems low; [3] Coal/Gas ‘PAF remains robust at 91.6% and
92.6%; [4] Coal linkage for 9 new projects (10920MW) received; and [5] 4.3GW target capacity addition in FY12,
14.7GW capacity under construction. Pending clarity on the RoE gross-up, we maintain forecasts for NTPC for now,
but could revise later. Maintain BUY.
Three takeaways from NTPC’s release on provisional financials and operating metrics for FY2011:
[1] RoE grossed-up at corporate tax rate; we expected a higher spike in provisional PAT
At Rs88.26bn, NTPC’s provisional reported net profit for FY2011 was in line with our forecast reported PAT for NTPC; adjusted PAT
figures are not available. At Rs25.1bn, although provisional 4QFY11 net profit was up 6% sequentially, considering the grossing up
of RoE at the corporate tax rate (33.2%) instead of MAT rate (19.9%) for the whole of FY2011, the Rs1.4bn uptick in reported profit
seems low to us.
[2] Coal / Gas ‘Availability’ remains robust
Plant Availability Factor (PAF) for coal-fired capacity in FY11 remained robust at 91.6% (160bps above our forecast assumption);
allaying concerns of fixed cost recovery from shortfall in coal supplies. PAF for gas-fired stations was 92.6% in FY11.
NTPC has seen improvement in coal supplies at Farakka and Kahalgaon facilities in FY11 – Farakka facility reached the normative
threshold PAF of 85% while disincentives at Kahalgaon facility materially reduced YoY. Overall, NTPC had 13.5 days of coal stock at
its stations as of March 2011.
As regards coal sourcing: [1] NTPC has received coal linkages for nine new projects with an aggregate capacity of 10,920MW
(6,120MW wholly owned projects); [2] Proposals to acquire coal mines abroad are under review; due diligence is underway on four
proposals in Indonesia and Australia; and [3] Starting FY2013, the Pakri Barwadih captive coal block is expected to produce 311.7mt
of coal over a 27-yr period
[3] 4.3GW target capacity addition in FY12, 14.7GW capacity under construction
NTPC's wholly owned commissioned and commercial capacity addition in FY11 was 1990MW (vs. our forecast of 2650MW) and
990MW (vs. our forecast of 1490MW), respectively. For FY12, NTPC expects to commission 4320MW including 2000MW of JV
capacity; currently, we peg stand-alone capacity commissioning at 2820MW.
NTPC’s FY11 stand-alone capex was Rs128bn ~25% below our forecast of Rs177bn. For FY12, NTPC has pegged stand-alone
capex at Rs264bn (~15% above our current FY12F capex of Rs223bn). Notably, on a stand-alone basis, NTPC has 10.9GW
capacity under construction and 12.3GW capacity under tendering. Environment clearance is in place for the 9x660MW projects
under bulk tendering
information. We maintain our BUY rating on the stock; on our FY13F forecast, the stock is trading at 14.1x P/E and 2.0x P/B.
Valuation Methodology and Investment Risks: We use a residual income model to value the company. Key assumptions of our model
are 1) Cost of equity - 12%; 2) Terminal RoE - 20%; and 3) terminal growth rate - 2%. / / Risks to price targets: 1) Project execution delays;
2) lower coal supplies under already signed FSAs/LoAs; 3) reinvestment risk; and 4) adverse regulatory changes.
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